I've seen enough misfires to be leery of Contacts autonomously deleting anything. I'd rather resolve some duplicates from time to time, personally, than risk losing anything. In fact, this "Look for Duplicates" feature is something I'd NOT use unless it lets me review the merges before they happen. Otherwise, I'm gonna just look for duplicate contacts, select just those a pair at a time and use the "Merge Selected Cards" feature.
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This does seem pretty janky. I'm not sure how long ago, but at one point I remember Contacts (or Address Book or whatever it was called) would bring up both contacts, highlighting the differences, and let you pick which to keep.